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Automobile industry hopes for financial incentive in scrapping old vehicles, wait for policy fine print

Replacement of old vehicles will not only play an important role in sales of newer vehicles, but also reduce the threat of air pollution.

Written by Parthasarathi Biswas | Pune |
February 11, 2021 10:03:57 am
Cars, automobilesGovernment estimates say that there are 51 lakh light motor vehicles which are older than 20 years and 17 lakh commercial vehicles which are older than 15 years.

After the initial euphoria over the vehicle scrappage policy in the union budget, the automobile industry is now waiting to read the fine print. Financial incentive for scrapping of vehicles and a proper infrastructure for carrying out the work, the industry feels, would make the policy a success.

The need for a vehicle scrapping policy has been a long-time demand of the industry. Replacement of old vehicles will not only play an important role in sales of newer vehicles, but also reduce the threat of air pollution. Government estimates say that there are 51 lakh light motor vehicles which are older than 20 years and 17 lakh commercial vehicles which are older than 15 years. Ashish Modani, vice president and co head corporate ratings, ICRA limited pointed out these vehicles would be eligible for scrapping as per the norms of the central government.

For an automobile manufacturing hub like Pune, the policy has received a warm welcome, but most of the players are waiting to read the details. Sandeep Belsare, president of Pimpri Chinchwad Small and Medium Scale Industries Association, said that the process should have been made compulsory instead of being voluntary. “Also as of now we do not see any financial incentive for scrapping of the vehicles, so many might want to avail of the option of paying green tax and continue using their old vehicles,” he said.

Countries like the USA, which had introduced the policy to beat economic recession of 2008, had attached financial incentive for vehicle scrappage. Modani pointed out the the finer details of the policy can contain the details. “In case the incentives are lucrative, it could provide strong demand support to the industry. Moreover, proposed levy of Green Tax for vehicles at the time of renewal will also impact used vehicle prices and will drive replacement demand,” he said.

Belsare and other players were quick to point out how the entire scrappage ecosystem at present is managed by informal players who are highly unorganized. “Most of the scrappage yards are maintained by people with little or no technical skills. For the policy to be successful we need a proper set of SOPs to be defined,” he said. Every district, he said, should allocate places where the scrapping can be carried out and recycled.

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